UK GDP figures: “Bank of England still on course to raise rates this year”

28th January 2016

Helal Miah, investment research analyst at The Share Centre, explains what the latest GDP figures mean for investors…

The Office for National Statistics said on Thursday that the UK economy grew by 0.5% during the final quarter of 2015 and 2.2% for the year as a whole, with both of these measures in line with market consensus.

Given the volatility and worries over global growth rates of late, these numbers came as a bit of a relief and as a result we have seen a small appreciation in sterling.

Investors will undoubtedly be aware that this figure is lower than 2014’s growth rate of 2.9% and is indeed the lowest for three years.

The UK’s global exposure is no doubt one of the key reasons for the moderating growth rate.

Emerging markets in general are weakening, while the eurozone struggles to make ground after the debt crisis in the region.

In recent months, UK industrial and manufacturing production has been falling. Even the services sector, which dominates the UK economy, has evidenced slowing growth. Sterling’s strength hasn’t helped with the country’s exporters either.

However, it is the UK’s resilient consumer and domestic economy, which still sees this country amongst the leading developed countries in economic growth terms.

For 2016, GDP is forecast to grow at 2.2% according to the International Monetary Fund.

These numbers should not change the markets view that the Bank of England is still on course to raise base rates this year, albeit now closer to the end rather than in the middle.